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The Patient Protection and Affordable Care Act (PPACA) and the Heath Care and Education Reconciliation Act (HCERA), collectively known as the Health Care Reform Acts, introduced sweeping changes regarding the delivery of health care for employers all over the United States. These acts, signed into law in March 2010, are intended to expand health coverage, control costs and improve access to and delivery of health care within the framework of the existing employer-based system. To make sure their employees are getting the coverage mandated by law and avoid facing sanctions for failure to comply, employers need to be familiar with the provisions of these acts.
Contrary to popular belief, the Health Care Reform Acts do not require individuals to get health insurance per se. However, the laws do impose a penalty on individuals who do not have employer-sponsored or individual health plans that provide “minimum essential coverage.” These penalties will start to take effect in 2014 and will reach their full effect in 2017. Starting January 1, 2014, individuals will be required to forfeit one percent of their taxable income or $95, whichever is greater. In 2015, those penalties will increase to two percent or $325, and in 2016, individuals will have to pay the greater of 2.5 percent of their income or $695. In 2017 and beyond, these penalties will be indexed and adjusted for cost of living. For each dependent under 18 who lacks coverage, individuals will have to pay an additional fee equal to half the adult fee.
The acts include provisions for some exemptions to these penalties. Individuals who go without coverage for less than three months may be eligible for an exemption; likewise, individuals who cannot obtain affordable coverage may not be assessed a penalty. Low-income individuals who do receive qualified health coverage may receive premium assistance and tax credits through a Health Benefit Exchange.
Likewise, the Health Care Reform Acts do not explicitly require employers to offer health insurance. Instead, through the “Pay or Play” provision, employers with more than 50 full-time employees are required to pay a fee if they do not offer minimum essential coverage. Any employer that does not offer health insurance, or that offers insurance that the government deems to be too expensive, despite having at least 50 full-time employees will be subject to penalties if and only if any employee receives a government subsidy for health coverage. For the purposes of these penalties, a full-time employee is anyone who works an average of at least 30 hours a week.
If penalties are assessed against an employer, the amount is equal to $2,000 per full-time employee beyond the first 30. For instance, an employer with 70 full-time employees that does not offer minimum essential coverage will be assessed a penalty of $80,000. In cases where some employees collect federal subsidies even though the employer offers health coverage, penalties may still be assessed; that penalty is equal to the lesser of the above calculation and $3,000 times the number of subsidized employees.
Small businesses with fewer than 25 full-time employees are not assessed penalties if they do not provide health benefits; however, they become eligible for a tax credit if they do offer minimum essential coverage. As long as the employer’s contribution is at least half the employee-only premium cost, these businesses are eligible for a tax credit on 35 percent of their premium costs; this credit will increase to 50 percent in 2014. For the purposes of these tax credits, part-time employees are counted in proportion to their hours; for instance, a company with 48 half-time employees effectively has 24 full-time employees and is thus eligible.
Employers are or will be required to take several additional actions to fully comply with these acts. By March 1, 2013, employers will be required to notify their employees in writing about the existence of their state’s Health Care Exchange, the benefits provided by same, the possibility of a tax credit for purchasing insurance through the Exchange, the consequences of doing so and contact details to reach out to the Exchange for more information. Starting in 2014, employers with more than 200 employees will have to automatically enroll new employees in their health insurance program and give them the opportunity to opt out. Thanks to a provision of the Fair Labor Standards Act (FLSA), employers must give nursing mothers reasonable break time and private locations in which to express breast milk, unless they can demonstrate a significant hardship. Finally, starting in 2018, providers of high-cost health plans will be assessed a non-deductible excise tax, known as the “Cadillac Tax.”
The Health Care Reform Acts also introduced several reporting requirements, the first of which went into effect with the 2012 tax year. Employers are now required to report the total value of medical, dental, vision and supplemental coverage on the Form W-2. Starting in 2014, employers with at least 50 full-time employees will be required to file information returns including their names and identification numbers, attestation regarding whether they offer minimum essential coverage to their employees, their monthly total number of full-time employees and the name, address, tax identification number and benefits received by each full-time employee. In addition, the law requires employers to send each employee written reports regarding these returns.
Finally, the Health Care Reform Acts made several significant changes to health care coverage. Group insurance plans are now required to offer dependent coverage to adult children up to age 26, and dependents need not remain unmarried or maintain full-time student status to stay eligible for this coverage. Health plans are no longer permitted to impose a lifetime dollar limit on minimum essential coverage and cannot deny coverage for pre-existing conditions. No group or individual health plan may rescind coverage once an individual has become a covered participant, and the waiting period for any such plan may not exceed 90 days. In addition, salary reduction contributions to flexible spending plans are now limited to $2,500 annually, and health savings, flexible spending or reimbursement accounts may not be used to pay for over-the-counter medications.
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